Unacademy has held extended discussions with offline test preparation centre Allen Career Institute for a potential sale that could value the edtech firm at $800 million, or less than a quarter of its peak valuation of $3.4 billion, three people in the know said.
The talks that have been ongoing for a few months now hinge on a final approval from Allen’s promoters — the Maheshwari family, the people said.
“While the negotiations have been on, with investment banks involved from both the sides, the key to the deal going through is to bring the Maheshwari brothers on board for merging Unacademy with Allen,” said a person close to the talks. “While other stakeholders seem willing to go ahead, the promoters are yet to sign off on the deal terms.”
If the merger goes through, it will emerge as a significant consolidation move in the edtech sector which has been hit not only by a prolonged slowdown after a surge in demand for online learning during Covid years, but also with the after-effects of the Byju’s bankruptcy and allegations of financial irregularities.
Bengaluru-based Unacademy too has faced post-Covid headwinds and pivoted to an offline model, from being online-only ever since it started operations as a YouTube channel a decade ago.
“The valuation of both companies will be used to fix the share swap ratio and that process is yet not completed,” said a second person. They are also yet to decide on the likely cash pay-outs to the founders and early backers of Unacademy, he said.
“While Unacademy has controlled its losses, its revenue has been flat. As for Allen, the business, while being profitable, has seen a significant dip due to the stress in the Kota coaching ecosystem,” this person said.
“The valuation being ascribed to Unacademy includes the cash balance of around $160 million that the edtech firm currently holds in the bank,” said another person briefed on the matter. He added that this has become the major contention between the two parties while arriving at Unacademy’s enterprise valuation, which excludes cash holding.
Emails sent to Allen founder-director Rajesh Maheshwari and chief executive Nitin Kukreja didn’t elicit a response, while Unacademy cofounder and CEO Gaurav Munjal did not respond to ET’s request for comment.
Founders to exit
Munjal and cofounders Roman Saini and Sumit Jain are expected to leave Unacademy if the transaction goes through, the people added. Another cofounder, Hemesh Singh, resigned as its chief technology officer in June this year but remains on an advisory role.
The merger talks are being steered by Munjal and Allen’s investor Bodhi Tree, which is jointly controlled by James Murdoch and Uday Shankar, the people familiar with the matter said.
In 2022, Bodhi Tree had pumped $600 million in the Kota-headquartered company, where the Maheshwari family is the majority shareholder. The coaching institute was valued at $1.3 billion at the time.
Unacademy shareholders include Singapore’s sovereign fund Temasek, General Atlantic, Peak XV Partners (formerly Sequoia Capital India), Nexus Venture Partners, Elevation Capital, Tiger Global, Meta and a clutch of angel investors. It has raised $880 million since inception.
“Allen’s interested in Unacademy to spruce up its digital presence and potentially go public as a merged entity. The Unacademy shareholders want to be a part of a profitable venture like Allen so they have been pushing for it to go through,” said one of the people.
Allen, which specialises in preparing students for engineering and medical entrance exams, runs more than 285 classroom campuses and 400 test centres in 64 Indian cities. It competes with Aakash Educational Services, Rao IIT Academy and Khan Global Studies, among others. In fiscal 2023, Allen reported Rs 2,277 crore in revenue with a profit of Rs 427 crore. It is yet to file its audited financials for FY24 with the Registrar of Companies.
For the financial year ended March 31, 2024, Unacademy recorded a loss of Rs 631 crore on revenue of Rs 988.4 crore.
Unacademy’s struggles
The steep valuation cut at Unacademy underscores the overall reset in the edtech segment after a few years of Covid-induced bump in online classes and the pullback from risk investors who turned cautious of the sector.
As Unacademy’s online business plummeted after the pandemic, it began focusing on expanding its offline presence which led to multiple layoffs and overall pruning of the company. “Munjal was not keen on running the physical format of coaching centres which led to a constant churn of the senior management at the firm as the future of Unacademy hung in the balance,” a person tracking the sector said on the condition of anonymity.
The Munjal-led firm had previously held merger talks with K12 Techno, which runs the chain of Orchids International Schools, as reported by news website Entrackr. Online publication The Morning Context had written about Unacademy being up for sale and holding discussions with Allen and rival Physics Wallah.
In July, Unacadmey laid off at least 250 employees, adding to a series of such job cuts through the past two years at the company. With the uncertainty around its business, its top deck has steadily been leaving the firm, including the likes of CFO Subramanian Ramachandran, COO Vivek Sinha, CMO Karan Shroff and SVP Ashish Arora.
See insights
Boost a post
Like
Comment
Send
Share
